The U.S. government is taking direct ownership stakes in American drone companies for the first time in history. Here are the three stocks worth owning right now — and one to approach with serious caution.
Back in December 2024, I recorded a free YouTube video on my five favorite drone stocks for 2025.
I said — and I quote my terrible pun here — that drones were “really going to take off” in 2025. I also called Kratos Defense a favorite when it was trading around $28. It went on to hit $134 in January 2026.
I’m telling you that story for one reason: what happened this week is not a surprise to anyone who has been watching this sector. It’s the next chapter of a story that has been building for over a year.
On May 27, the Wall Street Journal reported that the Pentagon is actively negotiating to take direct equity stakes in American drone companies. Not loans. Not contracts. Actual government ownership — something the U.S. has almost never done with private companies.
The market reacted the way it always does to big news: it moved the wrong stocks first.
A company called Unusual Machines (UMAC) — which did $11 million in revenue last year — jumped 52% in a single day. Meanwhile, AeroVironment, which has $1.9 billion in revenue guidance and a record backlog, moved just 8%.
That gap is where the opportunity lives. Let me explain what’s actually happening here — and which stocks I think are worth owning for real.
Why the Pentagon Is Buying Drone Stocks
Think of it this way. For decades, the government has been a customer. It pays defense companies to build things. A contract to build 500 missiles. An order for 10,000 drone components. That’s how it has always worked.
What’s being discussed now is different. The Pentagon wants to become an investor.
There’s a relatively new office inside the Department of Defense called the Office of Strategic Capital. Most people have never heard of it. Its job is to find companies critical to national security and help finance them — not just as a customer, but as an owner.
According to a recruiting document obtained by Foreign Policy, this office plans to deploy up to $200 billion over three years through equity stakes in strategic companies. That would be the largest accumulation of government ownership positions in American history.
We already have one real example of how this works. The Pentagon invested roughly $400 million in rare earth miner MP Materials, took a 15% ownership stake, added a $150 million loan, and locked in a 10-year purchase agreement with guaranteed minimum prices. The company knew exactly what it was going to sell, to whom, at what price, for the next decade.
That is the template. If the Pentagon applies that model to drones, the winning companies get guaranteed revenue, government financing, AND a long-term purchase contract. For the right company, that is genuinely transformative.
There is a catch, though — and the market hasn’t fully priced it yet. Government equity stakes usually come in the form of preferred shares and warrants. That dilutes the common shareholders who own the stock today. So the headline “Pentagon invests in drone company” isn’t automatically good news for retail investors holding that stock. You have to read the fine print.
The Drone Stock Catalyst Nobody Is Talking About: January 1, 2027
Here’s what I think is the most important thing happening in the drone sector right now — and it has nothing to do with this week’s headline.
On January 1, 2027, a federal ban on Chinese-made drone components goes into full effect across all U.S. government programs.
Right now, a significant portion of government drone programs — from local police departments to FEMA disaster response to border patrol — rely on parts made in China. Motors. Sensors. Flight controllers. Cameras. That’s all becoming illegal for any federally funded program within the next seven months.
Here’s the number that puts this in perspective. Before this administration, the Pentagon accounted for less than 2% of all U.S. government drone purchases annually. The other 98% — every fire department, every sheriff’s office, every infrastructure inspection crew, every emergency management agency — all of them use drones, and many use Chinese components.
Every one of those programs has a compliance clock ticking right now. That is a forced-buyer event for American drone companies that arrives whether or not any Pentagon equity deal ever gets announced.
This is what I call common sense investing. You don’t need to predict which companies get a government equity stake. You just need to own the American drone companies that are positioned to capture the mandatory replacement cycle that starts in January 2027.
The Best Drone Stocks to Buy Now
Not every drone stock is worth owning. Here are the three names positioned to capture the real opportunity — and why each one fits a different kind of investor. Plus, one to approach with caution.
AeroVironment (AVAV): The Institutional-Grade Drone Stock
I’ve been talking about AeroVironment stock since that December 2024 video, and the thesis hasn’t changed — it’s only gotten stronger.
AeroVironment makes the Switchblade loitering munition. You launch it from a tube, it flies to a target, and it destroys it. Ukraine has used thousands of them. NATO allies are buying them. It’s not a concept — it’s a proven weapon system in active use around the world.
The numbers as of the most recent earnings: quarterly revenue of $408 million, up 143% year-over-year. Record funded backlog of $1.1 billion — that’s money the company has already been contracted to earn. Nine-month bookings of $2.1 billion. Full-year 2026 guidance of $1.85 to $1.95 billion.
There was an accounting write-down last quarter — $151 million related to the Space segment — that caused a headline loss and spooked some investors. The core drone and counter-drone business is growing fast. That’s what I’m focused on.
On the day UMAC jumped 52%, AVAV moved 8%. That’s not because AVAV is less important to this story. It’s because institutional investors — the ones managing hundreds of millions of dollars — can’t buy an $11-million-revenue company like UMAC. When real money rotates into this theme over the next 12 months, AVAV is the name it flows into.
AVAV is the boring choice. In defense investing, boring usually wins.
Kratos Defense (KTOS): The Best Drone Stock for Long-Term Investors
Kratos Defense stock is the name I’ve been most excited about going back to 2024, when KTOS was trading in the $20s. The thesis then was simple: who wouldn’t want to be long the company building attack drones for the U.S. government?
The thesis now is even stronger.
Kratos makes the XQ-58A Valkyrie — a jet-powered drone designed to fly alongside manned fighter jets as an autonomous wingman. In January 2026, the Marine Corps selected the Valkyrie for its Collaborative Combat Aircraft program, in partnership with Northrop Grumman. Initial contract value: $231.5 million. Kratos expects to deliver 15 to 20 Valkyries to customers this year alone.
The company did $1.35 billion in revenue in 2025, up 17% year-over-year, and is guiding for up to $1.675 billion in 2026. Backlog stands at $1.57 billion. And separately, Kratos won a $1.45 billion hypersonics contract that barely registers in today’s revenue but could be a major growth driver by 2027 and 2028.
Here’s what I like most about KTOS as a trade. It wins under both possible futures. If the Pentagon equity program succeeds and scales, Kratos benefits from the rising tide in the whole sector. If the program gets challenged in Congress or becomes politically complicated, money rotates into companies that already have the contracts and don’t need a government bailout. Kratos fits that description perfectly — no government equity stake on its cap table, just real revenue and real contracts.
KTOS is the stock I want to own if I’m thinking about where this sector is in three years, not just three months.
Ondas Holdings (ONDS): The Aggressive Growth Drone Stock With Real Backlog
Ondas is the most aggressive name on this list. More upside potential, more execution risk. Not for everyone — but worth understanding.
A year ago, Ondas was a relatively small drone software company. In 2026, it went on a buying spree — six acquisitions including Mistral, a defense prime contractor with a $982 million U.S. Army loitering munitions program. That single deal changed what Ondas is.
The result: pro forma backlog jumped from $68 million at year-end 2025 to $457 million by Q1 2026. Revenue guidance for the full year has been raised to at least $390 million — roughly ten times what they did last year. The company ended Q1 with over $1 billion in cash.
Counter-drone is where Ondas is building real traction globally. Its Sentrycs system was selected to protect the 2026 FIFA World Cup. Iron Drone is seeing demand across multiple countries. These aren’t future products — they’re deployed today.
The valuation is rich. This stock has run hard and requires flawless execution on a very ambitious plan. But the backlog is real, the contracts are real, and the January 2027 compliance deadline creates a demand tailwind that isn’t going away anytime soon.
Unusual Machines (UMAC): The Hype Stock With a Math Problem
I’d be doing you a disservice if I didn’t address the stock everyone is actually talking about today.
UMAC has a real thesis. It makes American drone components — motors, frames, electronics — at exactly the moment the government is demanding American-made parts. It has a real Army contract: a $12.8 million order for 160,000 drone components. Donald Trump Jr. joined its advisory board in late 2024 and owns about 331,000 shares.
But here’s the math problem. UMAC did $11.2 million in total revenue last year and lost $19 million doing it. After this week’s run, the stock was valued at over $1 billion — more than 90 times revenue.
I’m not saying UMAC can’t work from here. I’m saying you need to know exactly what kind of bet you’re making. The Trump Jr. association sent the stock up 52% on news day. It could also become a liability if Congress starts investigating Pentagon equity deals after the 2026 midterms. This is a speculative trade, not a fundamental investment.
If you buy UMAC, know why you own it. Size it like a speculation. Don’t treat it like AVAV — they are not the same kind of position.
The Best Drone Stocks to Buy Now: Final Takeaway
In December 2024, I told my YouTube audience that drones were going to be one of the most important sectors to watch in 2025. That turned out to be true. The Pentagon’s move into equity investing is the next chapter — and it has another two to three years to fully play out.
The January 2027 Chinese parts ban creates a massive, mandatory replacement cycle for American drone companies that runs independent of any government equity deals. The question is simply which companies are positioned to capture that demand.
My ranking: AVAV for investors who want institutional-quality exposure with a 12-month horizon. KTOS for the investors thinking three years out. ONDS for investors comfortable with aggressive growth and real execution risk. And UMAC for traders who understand the speculative nature of the position.
I cover setups like this live every weekday morning at 11 AM ET on Masters in Trading Live — free on YouTube @LiveOptionsWithJR. The whole point of the show is finding where the market’s pricing hasn’t caught up to reality yet. Right now, in the drone sector, there’s a lot of that going around.
Jonathan Rose is a 28-year options market veteran and former floor trader at the CBOE and CME. He is the founder of Masters in Trading (MIT Live), airing free every weekday at 11 AM ET on YouTube at @LiveOptionsWithJR. This article is for educational purposes only and is not investment advice.
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